In recent times, we have witnessed a flurry of policies aimed at bolstering the private economy. This surge of support is crucial, as private enterprises are expected to play a pivotal role in steering China’s economy towards high-quality development against the backdrop of a dual circulation economic framework, which emphasizes both domestic and international markets.

The Importance of Employment for Small and Micro Enterprises

First and foremost, we must recognize the significance of small and micro enterprises (SMEs) in our society; they are akin to the capillaries of the economic body. Each small enterprise supports a family, making their function critical not just for business but for job creation. Thus, when it comes to policy-making, the central issue should revolve around employment rather than tax revenue.

Large tech giants were once small enterprises, and their growth trajectory often sparks inspiration. Apple Inc., for example, started out operating from a garage. Since the nation has focused on promoting technological advancement, it has encouraged companies to invest in innovation. The rationale is simple: technology leads to higher profit margins. High-tech products generate more revenue, enabling companies to compensate their employees generously. The disparity in average income between developed countries in Europe and the U.S. compared to China is partly attributed to their advanced technological landscape. Apple maintains staggering sales figures, selling over 2 billion units annually, and consistently ranks among the most profitable companies globally. Employees at Apple enjoy wages that surpass those in many other organizations worldwide.

Advertisement

Therefore, fostering technological development stands as a strong avenue for elevating employment levels and increasing incomes.

Legal Protection for Private Investments is Essential

Over the past few years, China has experienced shifts in its investment landscape. A troubling trend is the marginalization of private and productive investments in favor of non-productive ones, along with a rising tendency towards state-owned investments. This trend is clearly unsustainable.

There are concerns among stakeholders regarding the diminishing confidence of private investors in the market. Continuous improvements in the economy will need to provide a solid foundation for restoring trust. Moreover, we need to implement stable policies that offer consistent expectations. This is a cyclical process; it's unrealistic to expect a single policy initiative to boost confidence overnight. Investors are observing the market closely and will only commit once they recognize long-term benefits.

If the direction isn't clear, who would be willing to invest? It is a common sentiment among investors: they prefer actionable avenues that show promise. The idea of effective investment has gained traction in recent years; however, it's critical to ensure that these investments are made in a thriving market, yielding profits that cover costs and allow ongoing technical innovation. This is how effective investments are characterized; they focus equally on profit and technological advancement, fostering long-term cycles of innovation and wealth creation.

Encouraging Private Investment through Clear Regulations

With the volume of private investments stagnating, the scenario appears to be quite complicated, influenced by various intertwined factors.

Currently, private and small-scale manufacturers are under significant stress.

At this juncture, the lack of enthusiasm for private manufacturing investments can be traced to low expectations for exports. Many enterprises rely on export-driven growth, thus requiring supportive policies and subsidies. Without them, some might contemplate shifting their focus or even withdrawing from the market.

Moreover, private investors harbor apprehensions regarding future policy environments and the strategic positioning between state-owned and private enterprises. Recent regulatory efforts to address the platform economy have only fueled uncertainty as numerous capital investors hesitated in a landscape fraught with potential risks. The call for a standardized market access list could alleviate concerns by clarifying which industries are open to private investment and which are not, fostering competition between private and state-owned companies under the same rules.

The Quest for Funds and Trust

Among the essential elements for small and micro enterprises aiming for high-quality development are finance and credit.

Firstly, capital availability poses a challenge. Presently, many private enterprises face significant hurdles when trying to secure financing. This concern is particularly acute among small tech firms that play a vital role in fueling national economic growth.

Statistics reveal that fewer than one-third of technology-driven SMEs successfully obtain bank loans in their nascent stages. Moreover, these loans constitute a mere 1% of total bank lending, illustrating a vast disconnect between their national economic contributions and their access to financial resources.

Secondly, credit is increasingly crucial. Previously, the lack of funds was the main barrier; now, credit has emerged as a pressing issue as well. The nature of small enterprises—with their often vague business scopes and limited assets—leads to credibility challenges within the financial system, resulting in difficulties accessing bank loans.

While monetary loans come with strict repayment obligations, banks typically shy away from high-risk loans unless compensated with exorbitant interest rates, which may be beyond the financial capacity of emerging small enterprises. This predicament leaves many companies wrestling with their operational funding needs amidst ongoing financial obligations.

In contrast, American counterparts like Apple found flexible financing pathways in their formative years. They primarily depended on venture capital, which gained traction as they grew and highlighted their technological prowess. The rise of the tech sector in the U.S. closely parallels the evolution of its venture capital industry, both flourishing together.

Today, an intricate financing ecosystem has developed, which often starts with individual angel investors followed by rounds of institutional financing, leading up to public offerings. This comprehensive support spans the bulk of a company’s life cycle.

In recent years, Chinese authorities have also begun emphasizing SME development and financing, widening the channels through which private firms can secure funds—a significant and positive change. This shift forks away from heavy reliance on traditional banking routes towards a multilayered capital market, enhancing equity financing opportunities and delivering considerable benefits to private small enterprises.

For a tech-centric SME, positioned within a market that prizes innovation, it's crucial to have cutting-edge technology. This can attract investments without necessitating the firm to amass substantial collateral. As exemplified by Apple, early-stage ventures can be built in makeshift environments with minimal infrastructure and personnel. In such cases, banks might hesitate but equity investors could see potential, be willing to invest, and typically provide long-term capital based on future growth prospects.

Equity investors, aware that their returns are tied to the enterprise's success, are vested in ensuring the company thrives. This symbiotic relationship encourages a "1+1>2" outcome; should challenges arise, equity participants can offer assistance, fostering resilience during economic fluctuations. This alliance introduces not just financial resources but potential for strategic integration across industries, broadening horizons beyond mere capital investments.

However, a company lacking clarity in its objectives will naturally find itself marginalized by the market. Clear long-term strategies are essential for attracting investment, as mere existence does not guarantee success.

Lastly, the issue of credit remains paramount. Many SMEs grapple with a significant deficit in trust within the financial ecosystem. Fluctuations in credit markets can significantly affect them, as evidenced by the defaults in China's credit bond market from 2010 to 2022, with private enterprises accounting for roughly 65.71% of total default amounts.

In response, local and national authorities have rolled out initiatives encouraging private companies to engage in bond financing ventures, illustrated by recent successes where numerous private enterprises issued bonds worth considerable amounts in 2022. However, the overall proportion of financing from this channel remains relatively low.

Some private firms are actively exploring avenues to enhance their creditworthiness. By harnessing various resources, they can offer investors more confidence in the form of relevant bond products, leveraging potential collateral for backing. Financial instruments like convertible bonds have gained traction, offering a dual asset perspective that appeals to investors keen on retailing risk and returns.

Companies may also implement third-party assurances by engaging professional guarantors or seeking government support to augment their credit, establishing bonds with stronger creditors as collateral. Such strategies underscore the need for SMEs to bolster their credibility to foster greater trust within the bond markets and attract further investments.